Deal retains cheap power rate PUC to vote today on measure saving CMP customers money

BANGOR – Households buying bargain-priced electricity through the standard offer in Central Maine Power Co.’s service territory almost lost their cheap rate – and faced the possibility of having prices more than doubled – because of a contract dispute.

The haggling between Energy Atlantic, the Presque Isle-based company that sells standard offer electricity in CMP territory, and Engage America, the Canadian company that sells power to Energy Atlantic, could have resulted in a “singularly disastrous situation” for nearly 525,000 households, Maine Public Utilities Commission Chairman Tom Welch said Wednesday.

Since electrical restructuring went into effect March 1, 2000, those residential power users in central and southern Maine have enjoyed a rate of 4.1 cents per kilowatt-hour, and will continue to do so through Feb. 28, 2002. The standard offer is the default rate for electricity that households and businesses pay if they have not chosen another company to be their power supplier.

If the dispute hadn’t been worked out, the residential standard offer users in CMP’s service territory could have seen their rates increase to 8.4 cents per kilowatt-hour, said PUC senior analyst Mitch Tannenbaum.

The PUC today will be deliberating and voting on whether to approve an $8 million resolution to the dispute that could have cost ratepayers in CMP territory “in a worst-case scenario an additional $150 million,” he said. Because it is a legal proceeding, Welch could comment only on what is in the resolution, not on how he plans to vote.

“The reason these various agreements came together was to avoid these worst-case scenarios,” Welch said.

But residential ratepayers aren’t off the hook yet. Those customers will be asked to pick up the tab for $4.5 million of the $8 million that will be given to Engage to continue providing power to Energy Atlantic. Energy Atlantic will have to pay Engage $2.5 million and Frontier, a bond company that insured Energy Atlantic, will pay the remaining $1 million.

How the $4.5 million will be paid has not been decided, though it will eventually come out of the consumers’ pockets. It’s possible the money will come out of the proceeds of CMP’s sale of its power generators to FPL Energy. That $4.5 million otherwise would have been used to reduce transmission and delivery rates.

“This was a pretty modest price to pay … for a remarkable bargain we were able to get,” said Welch, noting the PUC had to hire an outside attorney to get involved in the negotiations because it affected PUC-set standard offer rates.

In the meantime, standard offer prices in other areas of the state have risen dramatically in the last year.

In Bangor Hydro-Electric’s service territory, households pay 7.3 cents per kilowatt-hour for power, and in Maine Public Service Co.’s service territory, the rate is 5.6 cents per kilowatt-hour. The rates do not include the price of transmission and delivery.

The dispute between Engage and Energy Atlantic began in December, but took a turn for the worse in March when Energy Atlantic, a subsidiary of MPS, filed documents with the federal Securities and Exchange Commission outlining that Engage wanted out of its contract.

Tannenbaum said what was being argued between the two companies essentially was breach of contract. According to the SEC filing, Engage told Energy Atlantic it was considering opting out of its contract by applying its opt-out clauses.

Engage apparently was eyeing other venues to sell its power because open market prices for electricity had doubled what Engage was getting from Energy Atlantic.

Whether Engage had opt-out clauses was in dispute, Tannenbaum said. The initial contract written between the two companies was out of the jurisdiction of the PUC and wasn’t approved by the commissioners.

If Engage had voided the contract, Energy Atlantic would have had to default on its standard offer contract, Welch said. The PUC then would have had to solicit bids from suppliers to sell standard offer service. Some or most of the standard offer power would have had to be purchased on the open market at rates double what they were more than 11/2 years ago.

Engage and Energy Atlantic officials did not return telephone calls for comment on Wednesday.

The fallout from the dispute is whether two of the parameters of state-mandated electrical restructuring are secure.

First, when the PUC approves a standard offer rate, and chooses a supplier, the contract written by the commission and signed by the company is supposed to be ironclad. The PUC has repeatedly said the contract could not be changed and the rate could not be increased.

Second, the intent of the electrical restructuring law was to stop stranded costs – or fees applied to consumers’ bills to recoup the financial differences brought on by fluctuations in various power markets.

Welch acknowledged that both, in a sense, are being changed because of this dispute. But he said if the PUC hadn’t gotten involved in the negotiations to end the dispute, the result for customers could have been worse.

When asked whether the agreement violates the principle behind deregulation, Welch replied, “Yes.”

“Does it violate it very much?” he added. “No. Does it violate it less than $100 million? Yes.”